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The "Big" Question

September 12, 1999

Frontier -- Keeping Score

The "Big" Question

Three E-postage rivals stamp their feet over who's the real underdog

Is Goliath trying to stamp out David again? And who gets to play the role of David? The question arises as a pair of Internet startups race to enter the online-postage business. They complain that industry giant Pitney Bowes Inc. is trying to use its formidable legal muscle to squash their new ventures by claiming their intellectual property as its own. Nonsense, says Pitney, adding that the upstarts are actually fronting for a crowd of giant competitors.

The fracas began this spring, after licensing talks broke down between Pitney Bowes, which has an 85% share of the traditional postage-meter market, and E-Stamp Corp. and Stamps.com Inc. All three companies have been scrambling to receive approval from the U.S. Postal Service to sell postage over the Internet beginning this month. Although each company employs slightly different methods, the basic technology would allow customers either to download or to go online to purchase postage and then use their own printers to inscribe outgoing mail with official meter stamps (InBox, page F.6). "You won't have to get in your car any longer and go to the Post Office," says Robert H. Ewald, chief executive of E-Stamp in San Mateo, Calif. "It's all about convenience."

Pitney claimed that its patents are applicable to all the technology and demanded royalties from the entrepreneurs--and it's no wonder. By 2002, $1.5 billion in postage will be purchased annually over the Internet, says small-business analyst Raymond Boggs at International Data Corp.

In June, Pitney sued to get its cut, prompting the startups to cry foul. They say the timing was suspect because both startups were seeking important financing. E-Stamp was trying to secure a private placement, and Stamps.com had just started a road show for its forthcoming initial public offering. "If they wanted to assert legitimate intellectual-property rights, they could have done so in 1998 rather than wait until the eve of our successful initial public offering," says John W. LaValle, chief financial officer of Stamps.com in Santa Monica, Calif. The suit, he adds, was an effort to "block Stamps.com's entry into the financial markets."

Almost immediately, the Justice Dept. sought information from the companies for possible antitrust violations. Undaunted, Pitney announced its own E-postage program last month, called ClickStamp. It has no comment on the antitrust probe. But Pitney spokeswoman Sheryl Battles disputes the idea that the Stamford (Conn.) giant is picking on small players, noting that Microsoft, AT&T Ventures, and Paul Allen's Vulcan Ventures are backing the startups. Indeed, Microsoft has already named E-Stamp its postage partner for its small-business site. "It's not David and Goliath at all," says Battles.

E-Stamp's Ewald disagrees. "Our revenue this year is zero. What are they? A $4 billion company? We have fewer people in our whole company than they do in their legal department," he fumes. "This is all about who will have control over what happens in your office--you or a large company?"